How to Cover Your Expensive Company Equipment

Businesses that utilize heavy machinery and expensive equipment are always at a risk of losing a lot of money from equipment damage.  If this an incident occurs, it is important that you are covered against serious loss.  To insure that you are protected a yearly evaluation of your equipment and the proper scheduling of it in an insurance policy will keep your company on its feet in case of a theft or inadvertent machinery damage.

Similar to the personal property scheduling talked about in an earlier post, the equipment schedule includes all expensive business items; specifically enumerating them in an “Equipment Floater” or “Inland Marine” portion of your business insurance policy.  Important factors to keep in mind when scheduling commercial property is how much it is worth, how old it is, and what the loss of use would mean for your business.  A properly scheduled equipment section will take all of this into consideration when the policy limits are set.

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A key point to be made about this policy section is the difference between Actual Cash Value (ACV) and Replacement Cost of the equipment.  Generally, most large equipment policies will include replacement cost for equipment that is up to 5 years old; after this age the policy payout changes to ACV unless the customer specifically requests replacement cost coverage.

  • Replacement Cost:  This pays out the cost of buying a functionally equivalent piece of equipment in the event that the covered machine breaks down or cannot perform its tasks.
  • ACV:  This will pay out the original price paid for the machine minus the depreciation of the equipment.  This depreciation varies with the equipment class and is based mostly on the equipment’s age and use.

Each carrier may offer slight variations on how they cover equipment floaters, so it is important to find a reputable agent with your best interests at heart.  For instance, RLI will waive depreciation on partial losses up to 20% of the property limit for ACV coverage, Hartford will cover all extra costs of replacement such as delivery fees and assembly, and some companies will cover the equipment even if it is loaned out to another contractor.  These companies may ask more in-depth questions about certain types of machinery to better assess the risk of loss; crane operation is a common example of this, so be prepared to answer questions about what the crane is used for, who the operators are, and how often the crane is used.

Another aspect of coverage to keep in mind is a small equipment blanket policy or rider.  This would cover any equipment used by the company with a cost less than the set section maximum ($5,000 is a common maximum).  Any damaged tools or machinery under this maximum amount would be replaced on either an ACV or Replacement Cost basis.

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